Jan 222009
 

Over the past several weeks we have had several tidbits of information come out giving indication to the general state of the NHL economy.

Dec. 22: NHL defies economy, projects rise in revenue

The NHL projects a 2 percent increase in league revenue for the 2008-09 season despite facing one of the worst economic crises to hit North America since the league contracted from 10 to six franchises around the time of the Great Depression

Dec. 24: Report: Coyotes receiving financial assistance from NHL

According to The Globe and Mail, the Coyotes are receiving financial assistance from the National Hockey League to keep the team afloat. The report indicates the team is receiving advances on their share of league revenue.

Jan 18: Paul Kelly Admits Escrow Payments to Rise”

Last night between games on HNIC, NHLPA executive director Paul Kelly was interviewed by Ron MacLean (link to HD video of the entire interview). The first thing they discussed was the rumor that escrow payments made by the players would be rising from 13% of their pay to 17-20%. Kelly wouldn’t say exactly how much the payment would rise, but he did answer in the affirmative that the 17-20% range was accurate.

Jan. 22: Report: Predators may buy own tickets to ensure NHL funds

According to the Tennessean, Predators officials have discussed the option of buying up unsold tickets to ensure they collect the maximum revenue-sharing from the league. Earlier this month, an ESPN.com report indicated the Coyotes forfeited 25% of their full share for failing to meet specific targets.

So, what can we conclude from all of this. First off, not everything is all rosey in all NHL locations despite what Gary Bettman would want you to believe. Clearly the Coyotes and Predators continue to struggle financially and I am sure Tampa, Florida, Atlanta, the Islanders and a few others are not that much better off.

Second, the players are going to have to give back a huge chunk of money because their salaries will far exceed the percentage of revenue they are allotted. This, I believe, will be a first for the players under the new CBA and it will be interesting to see how the players react to not getting as much money as they contracts stipulate. We can be pretty certain that the players will decide not to opt out of the current CBA (a smart thing to do in tough economic times) but when it expires for real in a couple of years when hopefully the economy has turned around and they might be in a better bargaining position, lets see how much of an issue this becomes.

Finally, the 2% revenue increase should give us some insight into what next years salary cap could be. When the salary cap gets set it is based on the previous years revenue and then the players can opt to boost it by up to 5% pending revenue growth projections. The players have always opted to do this including for this season. But, revenue growth has not grown by 5% and thus the cap is essentially higher, by about 3%, that it should be based on this years revenues and this will be reflected in next years salary cap numbers.

A few months ago <a href=”http://www.hockeyanalysis.com/?p=804″I discussed a variety of scenarios of revenue growth and the falling Canadian dollar and the impact they will have on the salary cap next season. I can now refine that projection using the 2% revenue growth number.

2007-08 Revenue: $2.62 billion
2008-09 Revenue: $2.67 billion (estimated based on 2% growth)

With revenue of $2.67 billion next years salary cap will be approximately $55.8 million with the players having the option to increase it to $58.2 million. So far the players have always opted to increase the salary cap the maximum amount they are allowed to but with projections being next years revenue will drop, not increase, it is quite likely they will not opt to implement the salary cap increase.

The NHL probably has fairly good projections for the remainder of this years regular season as many teams have sold a significant portion of their tickets and advertising revenues are all pretty much booked and accounted for. Playoff revenue is a different story as not a single playoff ticket has been sold yet and if the economy is still in the dumpers as many people expect, will NHL teams be able to jack up playoff ticket prices as much this year as they have in the past? If they can’t, that 2% revenue growth could be an optimistic number. Only time will tell but everything seems to be pointing to a drop in the salary cap of $1-2 million next season and quite possibly stagnant or dropping further the following season.

  One Response to “State of the NHL Economy”

  1.  

    Next year’s cap will be based on “pre-crash” revenues the NHL had locked in for advertising and season ticket sales. Single ticket sales and playoff ticket sales will reflect harder times. As well, revenues in Canadian dollars (around 30% of revenue at its high, I think) will fall markedly.

    I expect that the cap next year will be down 5% to 10%. This means that most teams spending to the cap will be forced to trade, waive, or buy out some players. Or, they can forgo re-signing their free agents. At the same time, a lot of the lower-spending teams will cut back even further. Might not be a good year to be a free agent.

    Vince Lecavalier must be happy with his ginormous 11-year, 85 million dollar contract. Unless Tampa files for Chapter 11. Then he won’t be so happy.

    Rick DiPietro must be hoping that his moneybags owner will continue to fund the Islanders past all reasonable expectation for another 12 years. (Or, should he be bought out, for another *24* years.)

    Here’s a suggestion for your next topic: In 5 years time, how many teams will play in the NHL? I’ll bet it’s closer to 20 than to 30 — if for no other reason than, a number of teams have owners that could drive a team into the ground in a *good* economy.

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